Wage scales and centralized bargaining – a binding constraint on the wage-setting?

Abstract

The wage-setting for Swedish teachers was up and until 1996 characterized by centralized bargaining and wage scales. According to the scales, wages were exclusively determined by teacher type and years in the profession. In 1996, the scale system was replaced by individual wage bargaining. This study uses this change in bargaining structure to examine whether the scale system was a binding constraint on the wage-setting. The results suggest that the scales did impose such a constraint, since the earnings structure changed after the reform. More precisely, entry-wages and earnings dispersion increased.